Drillers Outlook Panel: Challenges abound, but so do opportunities

Posted on 11 November 2009

It’s been said that drilling contractors are an optimistic bunch, and that certainly proved true with the three industry leaders who sat on the Drillers Outlook panel at the 2009 IADC Annual General Meeting on 9 November in Miami, Fla. David Russell of Rowan Companies, Kevin Robert of Pride International and Ed Jacob of Keen Energy Services spoke to the jackup, deepwater and land markets, respectively, discussing the myriad challenges and opportunities ahead.

On the jackup front, one common question has been: Are there too many jackups in the world?

David Russell, Rowan Companies

David Russell, Rowan Companies

“We don’t think so,” said Mr Russell, executive vice president – drilling operations for Rowan.

Any way you slice it, the world will need substantial new production of oil and gas in the next few decades in order to keep up with energy demand. That’s going to require a lot of drilling, he said.

Current overall worldwide jackup utilization sits at 73%, and that number goes up to 80% for just independent-leg cantilever units. “It’s not above 85%, but 80% is not a bad utilization,” Mr Russell said. Historically, 85% is a threshold level the industry has to pass before seeing any kind of increase in rig rates, he explained.

Utilization is even better for high-spec jackups (2 million hookload and above), at 92% worldwide, he said.

Perhaps the most worrying element for the jackup market is the number of newbuilds still waiting to enter the market – and only 10 of these 66 newbuilds (on order or under construction) are actually contracted.

“That sounds bad, but we feel like … probably 18 of those rigs are at risk due to credit problems or cycle change. And if you take that and lay it over attrition, we feel like the rig fleet will come back into balance,” Mr Russell said.

There’s also the age factor, and he pointed out that 76% of the global jackup fleet is already at least 20 years old. Assuming that rigs over 40 years old will be retired in the coming years, attrition could end up really helping to level out the supply and demand of jackup rigs.

“We’re not quite as pessimistic as some of the other analysts. We’re ready to move forward, and we’re excited about the future,” Mr Russell said.

Kevin Robert, Pride International

Kevin Robert, Pride International

On the deepwater arena, Pride senior VP marketing & business development Mr Robert noted that this sector can expect to see a significant increase in E&P spending worldwide over the next decade – from about $54 billion to $111 billion by 2020.

While exploration spending will continue to be steady, it will be development spending that will really drive deepwater activities to new heights. “Clients need to bring their discoveries onstream to generate revenue,” he said. That will drive rig designs in the coming years, as well as long-term programs for certain types of rigs.

It also bodes well for the drilling industry that deepwater geology continues to prove out. A total of 21 discoveries have already been announced in 2009 (through October) in 4,500 ft of water depth or greater. “This is a testament to the technology and skill of our clients and seismic companies… and if we can continue to improve our technology, we should expect discoveries to continue to happen.”

Brazil will remain a key player in the deepwater market as well, as they “have more than half of the proven and probable oil reserves in the world,” according to Mr Robert. Moreover, their talk of building 28 additional deepwater rigs could have significant impact on supply and demand.

Over on the land side of the market, Mr Jacob, president and CEO of Keen Energy Services, looked to the past to search for guidance for the future. For example, in previous natural gas cycle declines, how long did it take for the industry to get back to the same rig count as when the decline started?

Ed Jacob, Keen Energy Services

Ed Jacob, Keen Energy Services

Well, the industry never really recovered to the same levels after the early to mid-’80s bust, at least in terms of rig count. In fact, drillers survived for 20 years by consuming the approximately 3,500 rigs that had been built up until 1982, Mr Jacob said. “So our cost of capital was abnormally low compared to what it is today.”

After the 1997 bust, it took about 2.7 years for the industry to climb back to the same rig count again. And after the 2001 bust, it took about 3.6 years. That averages out to about three years per cycle – so you could argue that it could be about three years before the rig count will return to 2008 levels.

But another perspective is that the industry might never return to the same 2,000-plus rig count that was seen last year. “And I tend to agree with that,” Mr Jacob said. “Because I think our customers are demanding a different class rig than what we had seen in the past… the industry is definitely retooling on the North American land side, and technology is going to play a big role.”

Mr Jacob also encouraged his fellow drillers to focus on five critical challenges facing the industry today.

edjacobchart

At the top of that list is people. “We have to do a better job of retaining our people. There’s a huge cost in training and retraining people when we go through these cycles… It’s absolutely key that we don’t lose the efficiencies this industry has gained over the last few years with the implementation of technology and the implementation of better training.”

He also cited the challenges of rising insurance costs and dealing with tough capital markets while continuing to invest in technology. Volatility also won’t go away. “This industry is driven by perceived emotion; it’s not supply and demand,” Mr Jacob said.

“When this business goes in the ditch, and we’ve been in the ditch before, we just need to understand where we are. We know what to do when we’re in it, and we know how to handle it when we’re out of it.”

2 Comments For This Post

  1. Dipl. Ing. Volker Goebel Says:

    What a decline – 60 % !

    As long as the industry focus on oil and gas you will never recover again !

    Why ?

    European, especially the german energy market goes green. Even traffic.
    We save the petroleum for pullovers, plastic goods and airplane fuel.

    We found a solution. – Huge salt cavernes as heat exchanger surfaces.
    By using the coaxial heat extraction sonde/probe from Dipl. Engineer
    Volker Goebel we manage to produce 7,82 MW el / sec / borehole.

    >>> send your inquirys to >>> info@volker-goebel.biz >>>

    >>> “Geothermie” “GTKW” on >>>http://www.volker-goebel.biz

    It is all written in german. But i do speak a english. Check it out …

    Sincerely yours from Schwerin / Germany / Europe

    Volker Goebel

    Dipl. Ing. / Master of metal industry / sheetmetalworker / 43 j.
    .

  2. Dipl. Ing. Volker Goebel Says:

    Dear Sirs

    Think about a drill, a sonde, a cap, circulating huge water
    amounts without a pump, washing out an extra huge salt
    caverne, cooking the water pot empty, putting CO2 in an
    running a machine that produces fine electric current.

    Interested – can´t await your invitations and payments.
    I might come with Nabors, Baker Hughes & Mud-Data
    to explain, answer, contract and build what is needed
    in your area. Advanced geothermal & CO2 utilisation.

    Sincerely yours

    Volker Goebel

    info@volker-goebel.biz
    john.gass@nabors.com
    .

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